Wednesday, April 29, 2009

Obama and Second Mortgages

I can probably go on and on with my criticisms of Obama's proposals and this is yet another one. We got into the housing mess in large part because borrowers borrowed more than they could afford and lenders gave it it to them. By having the government require banks to issue lower mortgage rates on second mortgages, which is known as PMI Insurance for lenders who can't put at least 10% to 20% down on what they're purchasing, you simply demonstrate you haven't learned the lesson. Borrowers shouldn't put no money down on a new home. If you can't purchase a home with 10% or 20% down you shouldn't purchase it. Yes, this will result in a decline in houses sold and home values in the near term as less buyers get financing. But this should happen. It's the only way the housing market can stablize. In fact, it will happen eventually anyway because there is an underlying, fundamental relationship between income and mortgage payments. If you make $75K you can't reasonably make a mortgage payment on a $400K home. Eventually reality comes in no matter how a temporary government fix postpones it.

Yet another Obama policy that sounds easy and straightforward but results in bad consequences down the road. Another day, another reason to postpone an investment if you're able and inclined to do so. I am beginning to believe that his policies are in fact deliberately intended to stop investment so government grows as the crisis these policies casues grow. I am not a conspiracy theorist yet but I am beginning to feel this can't be accidental.

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